Costing ·
FIFO vs average cost: where your margin hides
When material prices jump, averages bury the loss until month-end. FIFO layers surface it per movement.
In high-variance assembly plants, margin doesn't only leak through scrap. It leaks when the cost of the material you actually consumed is not what the system reports.
The average-cost trap
Average cost blends prices across receipts. A January coil and a March coil become one blended number. The P&L looks fine until close — then the adjustment shows up.
What FIFO layers do
Each receipt that should carry cost opens a historical layer. Outbound movements drain the oldest layers first. COGS reflects the purchase economics of what left the warehouse.
What to ask for in a demo
Ask to see: a receipt that opens layers, a dispatch that drains them, and warehouse valuation from the same ledger. If Ops and Finance argue less about “which number is real,” the system is doing its job.